Q4 2024 AudioEye Inc Earnings Call
Teacher Malo Official
Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the risk factors section of the company's annual report on Form 10-K, its quarterly reports on Form 10-Q.
And its other reports and filings with the Securities and Exchange Commission.
Participants on this call are cautioned not to place undue reliance on these forward looking statements, which reflect management's beliefs only as of the date hereof.
Audio <unk> does not undertake any duty to update any correct or correct any forward looking statements.
Further management's remarks today will include certain non-GAAP financial measures a reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release or otherwise posted in the Investor Relations section of its website at Ww.
<unk> Dot audio I dotcom.
Now I'd like to turn the call over to audio is Chief Executive Officer, Mr. David Marathi Sir Please proceed.
Speaker Change: Thank you operator.
Speaker Change: Thank you to everyone joining us today.
My voice is a bit off today I have the flu, but I'm going to do my best.
Speaker Change: A year ago on our fourth quarter 2023 earnings call. We just got significant improvements over the last few years.
I joined the board of directors in 2019 to address operating efficiency and strategy.
Speaker Change: In 2019 gross margins were in the mid fifties adjusted EBITDA margins were in the mid negative sixties.
Speaker Change: And revenue per employee was in the low 100000 dollar range.
Speaker Change: I'm pleased that our operating efficiency continues to improve with the fourth quarter producing record revenue gross margin adjusted EBITDA.
And free cash flow using adjusted EBITDA minus capex.
Speaker Change: In the fourth quarter gross margins improved to 80% and adjusted EBITDA margins improved to a record 24%.
Revenue per employee continues to expand reaching over 330000 in the fourth quarter.
Speaker Change: We expect another great year in 2025 with strong growth and record adjusted EBITDA margins, which we will discuss shortly.
Speaker Change: In addition to producing top tier soft metrics, we provide a best in class product that gives clients, 3% to 400% more protection against validly old claims than any other product in the industry.
Speaker Change: We continue to invest in our product suite and have significantly increased our AI automated detection.
And analysis of recent data shows we can automatically detect approximately 500% more issues.
No other solution on the market.
Speaker Change: Last week, we released our 2025 digital accessibility index.
Speaker Change: What's involved reviewing 15000 websites across key industries, including Education Finance government health care hospitality software and retail.
Speaker Change: A new study found an average of 297 accessibility issues per page.
A substantial increase from the 37 issued per page sound and audio Wise 2023 index.
Speaker Change: The eight fold increase and as soon as detected is primarily due to improvements in our automated testing capabilities from two years ago.
Speaker Change: The European Accessibility Act or yeah, yeah. It is quickly approaching and will take effect in June of 2025.
Speaker Change: Requiring digital products and services, including website E Commerce and mobile apps to me accessibility standards across the EU.
Speaker Change: Businesses operating in the EU must ensure compliance or risk penalties.
Speaker Change: To ensure we capture demand from the a we have built a team in Europe to address the ear market, including new account executives in Europe.
We are planning for further expansion in the EU in 2025 and beyond.
Speaker Change: We expect that demand will look like the G. D. P aren't rollout in 2018 with scaled over five years and now have significant adoption.
Speaker Change: In the United States.
Speaker Change: I've been questions about what the new administration means for digital accessibility.
Speaker Change: On February 5th the office of personnel management issued a memo, stating that existing disability loss remain in force and federal agencies should not terminate or prohibit accessibility or disability related accommodations.
Our business has had no impact from the New administration, and we have limited revenues and the federal government.
Speaker Change: Additionally, there's currently no indication that the Doj will roll back requirements under title to the a D. A.
Speaker Change: We continue to see record demand and lead generation with private losses, continuing to be a notable driver for demand.
Speaker Change: Lastly, I welcome Jim Hawkins to our board of Directors, Jim has an impressive track record of driving growth and.
Speaker Change: And operational success that will be very beneficial as we expand.
From 2004 to 2018, he served as president and CEO of Baylis Medical a global leader in medical devices and software, where he led revenue growth from 37 million to $530 million and increased market capitalization from 68 million to one point.
Speaker Change: 1 billion.
A 1500 per cent increase.
Jim Hawkins: Jim currently serves on the board of directors of OSI systems, and it rather Mad Corporation.
Jim Hawkins: Moving onto guidance.
Jim Hawkins: We expect growth in revenue and adjusted EBITDA in 2025.
Jim Hawkins: With acceleration picking up in the second half of 2000 and twenty-five from EU and continued U S demand.
Jim Hawkins: For the first quarter of 2025, we are guiding revenue between 9.7 and $9 8 million.
With coastal security taxes, another beginning of your expenses impacting Q1, we.
Jim Hawkins: We expect to generate adjusted EBITDA between 1.85, and one point $95 million.
Jim Hawkins: And adjusted EPS between 14, and 16 cents per share.
Jim Hawkins: For the full year, we're guiding revenue between 41, and 42 million or a growth rate of around 18% at the midpoint.
Jim Hawkins: We expect adjusted EBITDA between nine and 10 million, representing 41% growth at the midpoint.
Jim Hawkins: We expect adjusted EPS between 70, and 80 cents per share.
Jim Hawkins: We also expect to continue to be a rule of 40 company going forward.
Jim Hawkins: I'll now turn the call over to Ottawa CFO Kelly.
Kelly: Thanks, David revenue again hit record levels in Q4 plenty cleaning for revenue at $9 7 million or 24% increase in Q4, and <unk>, three and 9% increase sequentially from Q3 'twenty 'twenty four.
Speaker Change: On a full year basis in 2024, our revenues grew 12% to $35 2 million and $31 3 million.
Speaker Change: When breaking this down by channel partner in marketplace channel, but its all revenue from our F&B focus marketplace products and revenue from a range of partners to deploy these same products for their SMB customers.
Speaker Change: In the fourth quarter importantly for our partner and marketplace channels.
14% year over year and represented approximately 58%.
Speaker Change: For the full year 2020 for this channel revenue grew 12% and $18 million in 2023 to $20 2 million in 2024.
Speaker Change: We continue to see an expansion of existing customers and new partners engaging with <unk> contributing to this channel scrap.
Speaker Change: How do you like enterprise can often justify larger customers and organizations.
Speaker Change: He knows with non platform custom website generally engage directly with Audi myself personnel or pricing installation.
In Q4, 2000, Twenty's for the enterprise cannot contributed 42% of Anr.
Speaker Change: Annual recurring revenue or <unk>.
Speaker Change: In the fourth quarter of 2020, or 36, 6, million% to 17% increase or a or at the end of the fourth quarter of 2023, an increase of 400000 sequentially.
Speaker Change: At December 31st plane plane for our customer count with approximately 127000, an increase from 126000 customers on September 30th Plain Honey part and an increase of approximately 17000 from December 31st 2023.
Speaker Change: Additions in both enterprise and partner marketplace channel.
Speaker Change: Drove the increase in customer count.
Speaker Change: Gross profit for the fourth quarter was $7 8 million or about 80% of revenue compared to $6 2 million or 78% of revenue in Q4 of last year.
Speaker Change: On a full year of 2020 for our gross margins were approximately 79% with gross profit increasing from $24 3 million in 2023 to $27 9 million in 2024.
Speaker Change: With a $3 9 million increase in revenue in 2020 for cost of revenue only increased by $300000.
How about input factor in the cost of revenue, including web hosting customer support and other costs directly related to product delivery.
Speaker Change: Operating expenses in the fourth quarter of 2020 or increased $2 4 million to $9 1 million from $6 7 million in the same quarter last year.
Speaker Change: This increase was primarily driven by nonrecurring or non cash items, including an additional stock compensation of 700000 litigation expense of 1 million additional investment in selling and marketing.
Speaker Change: On a full year basis operating expenses increased 3% or approximately $1 million to $31 3 million also driven by increases in employee stock compensation of 700000 litigation expense of $2 1 million and approximately 600000 and invest in sales and marketing.
Speaker Change: He is in R&D.
Speaker Change: Our total R&D spend in Q4 with approximately $1 8 million with approximately 400000 reflects the software development cost in the investing section of the cash flow statement.
Speaker Change: That is part of our Q3 2024 R&D investments.
Speaker Change: The total R&D spend was around 18% in Q4 2020 for revenue versus 22% in Q4, 2023, and R&D spend was 19% of our full year 2020 for revenue versus 29% for 2023.
Net loss in the fourth quarter of 2024 was $1 5 million or 12 cents per share compared to a net loss of 500000 or cents per share in the same year ago period.
Speaker Change: On a full year basis net loss for 2024, it was $4 3 million or 36 cents per share compared to a net loss of $5 9 million or 50 cents per share in 2023, and an improvement of $1 6 million.
Speaker Change: In the fourth quarter 2024, we again achieved record profitability with adjusted EBITDA of approximately $2 3 million or 18 cents per share compared to an adjusted EBITDA of $1 3 million or 11 cents per share in the same year ago period.
Speaker Change: On a full year basis, we produced record adjusted EBITDA of approximately $6 7 million or 55 cents per share compared to $1 3 million or 11 cents per share in 2023.
Speaker Change: This dramatic increase in adjusted EBITDA over the prior year's comparable period was driven by $3 9 million of revenue growth and reductions in non-GAAP expenses by approximately one 5 million.
In the fourth quarter of 2024, we generated $1 9 million of free cash flow calculated as adjusted EBITDA of $2 3 million. That's 400000 of software development costs and an improvement of $1 million in the fourth quarter of 2023.
Speaker Change: We ended Q4 2024 with $5 7 million in cash and cash equivalents.
Speaker Change: For the full year 2024, adjusted free cash flow was $4 9 million versus negative 600000 in 2020 three.
Speaker Change: In the first quarter of 2025, <unk> Board of directors authorized the repurchase of up to $12 5 million of the company's outstanding shares of common stock through January 2027.
Speaker Change: With cashless excise tax increase dramatically, we believe share repurchases offer an attractive way to deploy excess capital.
Speaker Change: With that we open up the call for questions operator, please give instructions.
Speaker Change: Thank you.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And our first question comes from Joshua Reilly with Needham. Please state your question.
Joshua Reilly: Alright, well, thank you for taking my questions and nice job on the quarter here.
Maybe just starting off on the EBITDA guidance for the year of $9 million to $10 million can you just help us.
Joshua Reilly: Get some more details around whether that includes all of the sales investments that you would be making in Europe to ramp that opportunity and then maybe also does that contemplate all of the sales investments you'd be making to ramp the U S opportunity and if you begin to outperform in terms of demand throughout the year would that lead you to make additional sales hires in the year.
Progresses.
Joshua Reilly: Oh, Yeah, I can take that high.
Joshua Reilly: The guidance does suggest that.
She does build out, but we think we need for additional sales and marketing investment and the $9 million to $10 million. We are investing in Europe as David mentioned I mean.
Joshua Reilly: I think there is additional opportunity to invest in your App. If we see additional demand there I think that could drive up our revenue trend potentially investment in that space, but yet there are expenses to account for what we think we need to invest in selling and marketing in 2025.
Joshua Reilly: Got it and then.
Joshua Reilly: But I think we'll be a lot more aggressive I just don't want to I don't want to say that without knowing right now we're seeing a lot of signs that it's starting to happen but.
I don't really want to go out there and all of them and say, we're going to aggressively hire 25 salespeople unless we see all the signs that show that.
Speaker Change: Understood. That's helpful and then in terms of bookings from the partner channel.
Speaker Change: I know that you know for example, civic plots hired a number of reps.
Speaker Change: Specifically to kind of tackle the opportunity with you guys. I guess, maybe you know how how are you now in terms of the partner channel as the government versus non government opportunities ramping consistent with what you expected and maybe just kind of give us some more color on what you expect in terms of that channel for 2025.
Speaker Change: Sure Yeah. They then implemented a very aggressive go to market plans as you know to capitalize on that.
Speaker Change: It'll to opportunity. We think these plans are going to contribute.
Speaker Change: Real growth in the second half starting in desktop but.
Speaker Change: It goes into 'twenty six 'twenty seven.
Speaker Change: And we have not seen any kind of slowdown in that or are there plans are what the new administration.
Speaker Change: Got it and then maybe just last question for me.
Speaker Change: Statement that that was put out on February 5th that you noted in the prepared remarks, I guess is that consistent you know can you give us any like.
Speaker Change: Historical basis for win win these entities put out this type of information is that kind of what the customers ultimately follow moving forward or how should we think about how that statement may influence customer activity here going forward. Thanks, guys.
Speaker Change: Yes.
Speaker Change: The federal government I don't know if any of us have seen what is currently happening and.
Speaker Change: The administration, so there's no real benchmark for us.
Speaker Change: Because those statements from OPM.
Speaker Change: Hi.
Speaker Change: Our new and.
I don't think we have any contacts historically those are but we haven't seen just.
Broadening out here, we haven't seen anything saying, there's still daily rates are at risk.
Speaker Change: We're seeing the opposite the recent statement from O P. N O P. M. You said that the previous administration conflated with.
Speaker Change: With accessibility and accessibility should never have been lumped into the eye.
Speaker Change: So what they're going after to me seems to be what they view as discriminatory hiring practices.
Speaker Change: Disability right.
I haven't seen anyone talking about getting rid of care pets for wheelchairs, our accessibility for web sites.
Speaker Change: Got it that's very helpful. Thank you guys.
Speaker Change: Your next question comes from Zach Cummins with B Riley Securities. Please state your question.
Zach Cummins: Yes, hi, good afternoon, and David I. Appreciate you are powering through hope hope you feel better soon.
Speaker Change: Yes.
Speaker Change:
Speaker Change: On the enterprise side I mean can you just speak about just the trends that youre seeing there I know that's been a pretty big bright spot throughout 2024, So just any update on trends in that enterprise channel.
Speaker Change: Any potential investments here as you're thinking of making there as we go throughout 2025.
Speaker Change: Yeah, I think I can take that we are seeing strong growth in enterprise. We're seeing record leads as David mentioned, we're seeing close rates improving so that's been a good channel I know we invested in that beginning in 2020 for further and we are seeing good results from the enterprise channel.
Speaker Change: So I feel like feeling good there and we also are seeing growth from reseller and decent growth overall on the reseller side and we expect to start to contribute to 2025.
Speaker Change: Got it.
Speaker Change: My one follow up question is really just around the European accessibility opportunity.
Speaker Change: David can you speak to kind of you.
Speaker Change: Just thinking of pick up in terms of inbound demand or just what are some of the early leading indicators that you are.
Speaker Change: Seeing with the deadline fastly approaching here in the coming months.
Speaker Change: Yeah.
Speaker Change: Really exciting opportunity.
Speaker Change: With the EU, it's not often that you yeah.
Speaker Change: Mandate for digital accessibility happening in the whole continent.
Speaker Change: So we already have a couple of folks in place, we're seeing pipelines build pretty dramatically right now we're seeing deals going from lead to you to close one.
Speaker Change: So that is happening.
Speaker Change: And are we.
Speaker Change: We expect a lot more momentum to continue this year as the year progresses.
Speaker Change: That model in a lot of revenue for the year, but we believe it can really exceeded to the upside if we execute.
Speaker Change: Understood well, thanks for taking my questions and best of luck with the rest of the quarter.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from Richard Baldry with Roth Capital Partners. Please state your question.
Richard Baldry: Thanks can you talk about any activities around adding new partners either in the U S or maybe Europe's more active because of sort of the approaching deadline, how do we think about your.
Your ability to get increase to leverage sales overtime. Thanks.
Richard Baldry: Yeah in the he was speaking to a number of partners at the moment, So I would expect that.
Richard Baldry: There'd be additional partners, we add overtime there.
Richard Baldry: Yeah.
Richard Baldry: And overall, how would you view sort of the balance are expected near term balanced between buybacks versus debt reductions Navy stock pulled back. This hard do you think it's more on the buyback side or how do you think about that.
Richard Baldry: Yeah, as we mentioned on the call would you expect free cash flow that I continue into 2020 five.
Richard Baldry: And we do like the idea of a buyback as an attractive way to use capital and do you think we will balance that with them to get it to its best and in the best interest of shareholders.
Richard Baldry: As we mentioned in the call we did.
Richard Baldry: Without a buyback out there sport can use that as an opportunity.
Richard Baldry: Great, we're going to we're going to generate quite a bit of cash as the year goes on so I think it'd probably be a pretty good use of money to.
Richard Baldry: The buyback stock.
Richard Baldry: Especially around current levels.
Richard Baldry: Last time, we bought what was around five.
Richard Baldry: And the business is a lot better now today than back then.
Richard Baldry: Again, there are a lot more cash and so we think it's a good use of proceeds.
Richard Baldry: Yeah.
Richard Baldry: And last from me I'm not sure if you already addressed this but.
Richard Baldry: Any discussion on retention.
Richard Baldry: Gross retention net retention like that for a 24 hour compared to maybe <unk> 23.
Richard Baldry: I'll, let Kelly take that but I think that's been pretty similar overall, a pretty higher attachment rates generally.
Speaker Change: M E.
Richard Baldry: They are ours.
Speaker Change: Around the 90% range overall.
Speaker Change: Yeah, I think that's fair I think we've continued to see.
Speaker Change: Good <unk> metrics out there I don't I don't think enough of a change year over year I think in general it just have held.
Speaker Change: Solid throughout.
Speaker Change: Alright, maybe last from me.
Speaker Change: If Europe wants to just sort of start moving faster than you. Currently anticipate what are there any sort of tougher friction points to keep up with that what would be the hardest part to keep up with that.
Speaker Change: I didn't hear the first part of the question sorry.
Speaker Change: Yeah, sorry, if Europe was to pick up maybe faster than you thought.
Speaker Change: What would be the toughest sort of friction point to keep up with that or do you feel like you're well scale to keep up to any acceleration that sort of a relatively straightforward ability to scale.
It's always hiring good salespeople and you're going to have the best product, but you really need great salespeople to sell that product. So that's always a challenge when you're not going to hit 100%.
Speaker Change: I think the best people will probably hit around 70, 75% when they're higher.
Speaker Change: Yeah.
Speaker Change: So that is the continuous challenge, it's always hiring of salespeople and navigate a friction point.
Yeah.
Speaker Change: Great. Thanks.
Speaker Change: Thank you. Your next question comes from George Sutton with Craig Hallum. Please state your question.
Speaker Change: Thank you David I appreciate the thought about GDP or in terms of how that rolled out so with that as context as we're talking about 18% guided growth for 2025, as we look out into 'twenty six is.
Speaker Change: My assumption is that you would anticipate an acceleration, but I wanted to get your thoughts on that.
I think Thats fair I don't think we're going to give any numbers right now, but I think that's fair.
And also just no one's asked it but I'll say it.
Speaker Change: When determining the guidance, we consider a few factors and right now we are considering the economy.
Speaker Change: Economic conditions seem like they could get a little worse here with all the talk of tariffs and a federal budget cuts. So I don't think we're calling for a deep recession, but I think it's prudent to incorporate some slowdown and how we're thinking about building models.
Speaker Change: I'm sure you're hearing other companies say the same things I mean, the software has been tough now.
Speaker Change: Our 2022, you've seen you've seen a lot of tightness there we've been outgrowing the accessibility market in many software companies, while improving our metrics.
Speaker Change: But I thought it'd be helpful to give that context, the power right writing out the guidance.
Speaker Change: Got you so relative to the Doj enforcement.
Of the new rules any sort of feedback.
Speaker Change: In terms of what you've been hearing or are we still too early.
Speaker Change: I think that that becomes an important characteristic of the story.
Speaker Change: I don't think they're going to enforce.
Speaker Change: I think they leave the rule on the books and I think that's a private litigation maybe what are you seeing the first case.
They recently in Louisiana.
Speaker Change: On this and so I think that's gonna be private enforcement I believe it was lose Louisiana, but we'd have to look that up but that I think that'll be the driver just like our website accessibility on California.
Speaker Change: Okay, and then finally you.
Speaker Change: The acquisition of 80 acre site compliance, which gave you an audit capability and I'm. Just curious has that been rolled out are you seeing more cases, where you're adding I don't want it to your opportunity.
Speaker Change: We've had audit capability for a long time are way up selling customers, yes that is the goal.
And that'll be over the next.
Speaker Change: Yeah, so as the contracts roll off Kelly anything to add to that.
Speaker Change: No I think that's right and just on 80 acre site complaints in general we have integrated them quite rapidly. So we have the teams integrated we're moving customers over so how do you like contracts, that's going well, we're seeing good ourselves there. So I'm more of a acquisition because of their customers and we think that fit my audio I N from what we're seeing to date.
Speaker Change: At.
Speaker Change: It's trending to what we expected for the acquisition, which is great.
Okay. Thank you.
Speaker Change: Thank you.
Thank you. Your next question comes from Scott Buck with H C. Wainwright. Please state your question.
Speaker Change: Hi, Good afternoon, guys. Thanks for taking my questions. I believe this was the highest level of quarterly level of selling and marketing expense in about three years I'm curious if you could give a little color on what kind of return you're seeing on the increased marketing spend.
Speaker Change: Yeah marketing spend in selling expense, we can ramp is as we're seeing our Hawaii and so as I mentioned, we're seeing really good lead comes through we're seeing great clothes when rates come through and so we thought it was the right thing to do to invest in selling and marketing and so.
Speaker Change: Yes, I think we'll continue to invest in selling and marketing in 2025.
Speaker Change: But make sure that I realize there so essentially additional investment because we see you know good returns off of that and we will continue to do that as long as we see those returns.
Speaker Change: Great and assuming you see.
Speaker Change: <unk> been stronger ROI in the first half of 'twenty five could you potentially.
Push more money into selling and marketing and perhaps we you know at the expense I guess of adjusted EBITDA margins.
Speaker Change: Just kind of getting trying to get a sense of how you price, we're prioritizing capital allocation reinvesting in the business it sounds like buybacks or an option I'm going I'm, just trying to get a better sense of what you're thinking about.
Speaker Change: Yeah, I think we've been been able to find that efficiency in selling and marketing side do you think we'll keep investing in it but we want to make sure that Oh is there so potentially we could invest more but I think we would expect to see additional revenues come with that.
Speaker Change: But I think you know well well well balance that but we wanted to be strategic and we do like that you know.
Speaker Change: Adjusted EBITDA.
Margin and so well balanced off but I think we couldn't keep investing in sales and marketing if we see the airline.
Speaker Change: Okay perfect. Thanks, Kelly EBITA, that's all I have got a little bit a little bit of a lag that EBITDA would go up.
Speaker Change: What's more I guess.
Speaker Change: Those metrics.
Speaker Change: Yes, no that makes sense I appreciate that David and thanks again guys.
Speaker Change: Thank you.
At this time. This concludes our question and answer session I'd now like to turn the call back over to Mr. Marty for his closing remarks.
Speaker Change: Thank you everyone for putting up with my voice today appreciate your time and we'll see on the next call.
Thank you.
And before we conclude before we conclude today's call I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investor Relations section of the company's website. Thank.
Speaker Change: Thank you for joining us today for audio is fourth quarter and full year 2024 earnings Conference call you may now disconnect.